Question & Answer

Compare how the return of capital principle applies when (1) a taxpayer sells an asset and collects the sale proceeds all immediately and (2) a taxpayer sells an asset and collects the sale proceeds over several periods (an installment sale). If Congress wanted to maximize revenue from installment sales, how would it have applied the return of capital principle for installment sales?

A fillet weld has a cross-sectional area of 25.0 mm2 and is 300 mm long. (a) What quantity of heat (in joules) is required to accomplish the weld, if the metal to be welded is low carbon steel? (b) How much heat must be generated at the welding source, if the heat transfer factor is 0.75 and the melting factor = 0.63?

Tim is a single, cash-method taxpayer with an AGI of $50,000. In April of this year Tim paid $1,020 with his state income tax return for the previous year. During the year, Tim had $5,400 of state income tax and $18,250 of federal income tax withheld from his salary. In addition, Tim made estimated payments of $1,360 and $1,900 for state and federal income taxes, respectively. Finally, Tim expects to receive a refund of $500 for state income taxes when he files his state tax return for this year in April next year. What is the amount of taxes that Tim can deduct as an itemized deduction?

On January 1, year 1, ABC Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per-share price of ABC stock on January 1, year 1). Assume the options vest on December 31, year 1, and that all 5,000 stock options were exercised on the vesting date when the stock was valued at $31 per share. Identify ABC’s tax deduction and book-tax difference associated with the stock options under the following alternative scenarios:

Jackel Industries presents you with the following information. Accumulated Date Salvage Life in Depreciation Depreciation to Depreciation Description Purchased Cost Value Years Method 12/31/15 for 2016 Machine A 2/12/14 $142,500 $16,000 10 (a) $33,350 (b) Machine B 8/15/13 (c) 21,000 5 SL 29,000 (d) Machine C 7/21/12 75,400 23,500 8 DDB (e) (f) Machine D 10/12/(g) 219,000 69,000 5 SYD 70,000 (h) Instructions Complete the table for the year ended December 31, 2016. The company depreciates all assets using the half-year convention.

If a firm has a typically shaped average cost curve and sets prices 10 per cent above average cost, what will its supply curve look like?

Production rate for a certain assembled product is 47.5 units per hour. The total assembly work content time = 32 minutes of direct manual labor. The line operates at 95% uptime. Ten workstations have two workers on opposite sides of the line so that both sides of the product can be worked on simultaneously. The remaining stations have one worker. Repositioning time lost by each worker is 0.2 min/cycle. It is known that the number of workers on the line is two more than the number required for perfect balance. Determine (a) number of workers, (b) number of workstations, (c) the balancing efficiency, and (d) average manning level.

Some individuals have indicated that the FASB must becognizant of the economic consequences of its pronouncements.What is meant by “economic consequences”?What dangers exist if politics play too much of a role inthe development of GAAP?

In the iron-iron carbide phase diagram of Figure 6.4, identify the phase or phases present at the following temperatures and nominal compositions: (a) 650°C (1200°F) and 2% Fe3C, (b) 760°C (1400°F) and 2% Fe3C, and (c) 1095°C (2000°F) and 1% Fe3C.

Laura Davis is a member in a limited liability company that has historically been profitable but is expecting to generate losses in the near future because of a weak local economy. In addition to the hours she works as an employee of a local business, she currently spends approximately 150 hours per year helping to manage the LLC. Other LLC members each work approximately 175 hours per year each in the LLC, and the time Laura and other members spend managing the LLC has remained constant since she joined the company three years ago. Laura’s tax basis and amount at-risk are large compared to her share of projected losses; however, she is concerned that her ability to deduct her share of the projected losses will be limited by the passive activity loss rules. a. As an LLC member, will Laura’s share of losses be presumed to be passive as they are for limited partners? Why or why not? [Hint: See §469(h)(2); Garnett v. Comm’r, 132 TC 368 (2009); and Prop. Reg. § 1.469-5(e)(3)(i).] b. Assuming Laura’s losses are not presumed to be passive, is she devoting sufficient time to the LLC to be considered a material participant? Why or why not? c. What would you recommend to Laura to help her achieve a more favorable tax outcome?

Lucy and Ricky Ricardo live in Los Angeles, California.  After they were married, they started a business named ILL Corporation (a C corporation).  For state law purposes, the shares of stock in ILL Corp. are listed under Ricky’s name only.  Ricky signed the Form 2553 electing to have ILL taxed as an S corporation for federal income tax purposes, but Lucy did not sign.  Given that California is a community property state, is the S election for ILL Corp. valid?

Explain the role of the Emerging Issues Task Force inestablishing generally accepted accounting principles.

What is the difference between absolute positioning and incremental positioning?

Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date purchased and no commission is charged. Discuss whether this plan would be consideredcompensatory.

What are the limitations of scanning tunneling microscope in nanofabrication that inhibit its commercial application?

A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8. Instructions (Round all numbers to the nearest cent.) Refer to the data in E21-8 and do the following for the lessor. (a) Compute the amount of the lease receivable at the inception of the lease. (b) Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term. (c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2014, 2015, and 2016. The lessor’s accounting period ends on December 31. Reversing entries are not used by Mooney.

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment’s list price. Each note’s stated interest rate is below the customer’s market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults. Instructions (a) What is the appropriate valuation basis for Corrs’s notes receivable at the date it sells equipment? (b) How should Corrs account for the sale, without recourse, of a February 1, 2014, note receivable sold on May 1, 2014? Why is it appropriate to account for it in this way? (c) At December 31, 2014, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it (1) Retained and did not sell? (2) Sold to bank with recourse?

Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swarten’s journal entry if (a) the stock has no stated value, and (b) the stock has a stated value of $2 per share.

Distinguish between the following values relative to bonds payable: (a) Maturity value. (c) Market (fair) value. (b) Face value. (d) Par value.

A part is produced using six conventional machine tools consisting of three milling machines and three drill presses. The machine cycle times on these machines are 4.7 min, 2.3 min, 0.8 min, 0.9 min, 3.4 min, and 0.5 min. The average load/unload time for each of these operations is 1.25 min. The corresponding setup times for the six machines are 1.55 hr, 2.82 hr, 57 min, 45 min, 3.15 hr, and 36 min, respectively. The total material handling time to carry one part between the machines is 20 min (consisting of five moves between six machines). A CNC machining center has been installed, and all six operations will be performed on it to produce the part. The setup time for the machining center for this job is 1.0 hr. In addition, the machine must be programmed for this part (called “part programming”), which takes 3.0 hr. The machine cycle time is the sum of the machine cycle times for the six machines. Load/unload time is 1.25 min. (a) What is the total time to produce one of these parts using the six conventional machines if the total consists of all setups, machine cycle times, load/unload times, and part transfer times between machines? (b) What is the total time to produce one of these parts using the CNC machining center if the total consists of the setup time, programming time, machine cycle time, and load/unload time, and what are the percent savings in total time compared to your answer in (a)? (c) If the same part is produced in a batch of 20 pieces, what is the total time to produce them under the same conditions as in (a) except that the total material handling time to carry the 20 parts in one unit load between the machines is 40 min? (d) If the part is produced in a batch of 20 pieces on the CNC machining center, what is the total time to produce them under the same conditions as in part (b), and what are the percent savings in total time compared to your answer in (c)? (e) In future orders of 20 pieces of the same part, the programming time will not be included in the total time because the part program has already been prepared and saved. In this case, how long does it take to produce the 20 parts using the machining center, and what are the percent savings in total time compared to your answer in (c)?

Castleman Holdings, Inc. had the following availablefor- sale investment portfolio at January 1, 2014. Evers Company 1,000 shares @ $15 each $15,000 Rogers Company 900 shares @ $20 each 18,000 Chance Company 500 shares @ $9 each 4,500 Equity investments (available-for-sale) @ cost 37,500 Fair value adjustment (available-for-sale) (7,500) Equity investments (available-for-sale) @ fair value $30,000 During 2014, the following transactions took place. 1. On March 1, Rogers Company paid a $2 per share dividend. 2. On April 30, Castleman Holdings, Inc. sold 300 shares of Chance Company for $11 per share. 3. On May 15, Castleman Holdings, Inc. purchased 100 more shares of Evers Co. stock at $16 per share. 4. At December 31, 2014, the stocks had the following price per share values: Evers $17, Rogers $19, and Chance $8. During 2015, the following transactions took place. 5. On February 1, Castleman Holdings, Inc. sold the remaining Chance shares for $8 per share. 6. On March 1, Rogers Company paid a $2 per share dividend. 7. On December 21, Evers Company declared a cash dividend of $3 per share to be paid in the next month. 8. At December 31, 2015, the stocks had the following price per share values: Evers $19 and Rogers $21. Instructions (a) Prepare journal entries for each of the above transactions. (b) Prepare a partial balance sheet showing the investment-related amounts to be reported at December 31, 2014 and 2015.

Kamal contributed $10,000 in cash and a capital asset he had held for three years with a fair market value of $20,000 and tax basis of $10,000 for a 5 percent capital and profits interest in Green Valley LLC. a. If Kamal sells his LLC interest 13 months later for $30,000 when the tax basis in his partnership interest is still $20,000, how much gain does he report, and what is its character? b. If Kamal sells his LLC interest two months later for $30,000 when the tax basis in his partnership interest is still $20,000, how much gain does he report, and what is its character? [Hint: See Reg. §1.1223-3.]

The assets of Fonzarelli Corporation are presented below (000s omitted).   Instructions Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets.

Many traditional shops have closed in recent years as more people have shopped online – a trend hastened by the forced closure of non-essential shops in the lockdowns during the COVID-19 pandemic. How is this likely to have affected the balance of employment and unemployment of women and men?

All else being equal, should taxpayers prefer to exclude income or defer it?Why?